- Consulting with Canadians -

Canadian Federation of Independent Business (CFIB) Submission in Response to Finance Canada's Large Bank Mergers in Canada:

Related documents:

• Quarterly Business Barometer

• Banking on Competition Results of CFIB Banking Survey

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December 31, 2003

Mr. Gerry Salembier
Director, Financial Institutions Division
Financial Sector Policy Branch
Department of Finance
140 O'Connor Street
Ottawa, Ontario
K1A 0G5

Dear Mr. Salembier,

The Canadian Federation of Independent Business (CFIB) welcomes this opportunity to present its members' views on the major issues raised in the Finance Canada report "Response of the Government to Large Bank Mergers in Canada: Safeguarding the Public Interest for Canadians and Canadian Businesses".

The role of public policy on banking is now more important than ever to Canada's small and medium-sized enterprises (SMEs). The strength and confidence of small business owners are the foundation to a thriving economy. CFIB's most recent Quarterly Business Barometer Index, which reflects how well business owners expect their own firms to perform over the next 12 months, stands at 109.9—its highest level since the middle of 2002 (see attached report Quarterly Business Barometer). Critical to the continued success of the SME sector is access to competitive banking services.

It has now been five years since the Mackay Task Force made recommendations to increase competition in the banking industry. Despite the corresponding changes in financial institutions legislation, any appreciable increase in competition has failed to materialize. CFIB survey results from 2003 show clearly that these changes have not yielded any concrete improvements overall (see attached report Banking on Competition).

Public debate on banking has focused primarily on mergers among Canada's large banks. Unfortunately, there has been little discussion on how to improve conditions in the access and provision of financial services to small business. The result of a CFIB survey of SMEs conducted in January 2003 show that 58 per cent of respondents believe that additional competition should be a prerequisite for allowing banks to merge, while 30 per cent oppose mergers under any conditions (see attached). Less than 10 per cent would support mergers without any conditions. This survey result reflects the serious fundamental concerns of Canada's entrepreneurs with respect to their relationship with Canada's banks. The message from SMEs is clear: do not permit mergers until comprehensive alternatives are established, operating and viable. The public interest is best served through more competition, not more consolidation.

CFIB is pleased that the Finance Canada report outlines the need for a broad public interest review by the Minister of Finance of any bank merger proposal that goes beyond the role of OSFI and the Competition Bureau. We also agree with your Department's assessment that large bank mergers in Canada are not like mergers in other industries given the current level of concentration in the banking industry. As a result of the banks' major role and special status in the economy, public policy must focus on whether a merger is in the public interest and how consumers and businesses will benefit from a merger. In particular, CFIB agrees with the Government's conclusion that individual Canadians and businesses of all sizes should have convenient access to a range of financial services.

The report also outlines some major issues, ranging from cross-pillar mergers and the role of credit unions and foreign banks, to more process-oriented items such as a 60-day window for reviewing multiple merger applications. CFIB believes that the underlying principle in considering each of these issues is how to improve conditions in the access and provision of financial services to small business. The preferred approach is to aim all efforts at increasing competition in the banking industry before mergers are even contemplated. The status quo in the banking industry is not acceptable. Rather, the Government should provide its vision of how the banking sector can better service its most valued client—the SME sector.

CFIB will continue to work with all stakeholders towards increasing the overall level of banking competition that must be in place before mergers are permitted. While the objective is challenging, it should not deter efforts in this direction.

Thank you for the opportunity to provide our views. We look forward to further discussions with you on this very critical issue.

Sincerely,

Catherine Swift
President and CEO

Enclosures (3)

cc: Nicholas Le Pan, Superintendent, OSFI
Gaston Jorré, Acting Commissioner of Competition, Competition Bureau